8 Questions With Steve Nyvik of Lycos Asset Management

1. How and why did you get started investing? What is your background?

Investing has always been a passion of mine. I remember being 10 years old glued to the television watching Wall Street Week with Louis Rukeyser.

My formal education include:

• Bachelor of Business Administration (BBA) degree in 1989 from Simon Fraser University, British Columbia, and
• Master of Business Administration (MBA) degree in 1990 from European University, a private business school headquartered in Switzerland with campuses in Geneva, Montreux, Yvorne, Munich, London, and Barcelona.

My professional designations include:

• Registered Financial Planner (R.F.P.) in 1995, a financial planning designation administered by the Institute of Advanced Financial Planners
• Certified Financial Planner (CFP) in 1996, a financial planning designation administered by the Financial Planning Standards Council of Canada
• Canadian Investment Manager (CIM) in 2005, an investment management designation administered by the Canadian Securities Institute

I’ve been working in financial planning and portfolio management over the last 24 years.

1. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas from?

I am a portfolio manager and financial planner with Lycos Asset Management Inc (“Lycos”). Lycos is a Canadian independent investment management firm. We utilize National Bank Financial as the custodian. Clients open up investment accounts in their name with National bank and Lycos is granted trading authorization. National Bank provides internet access to clients and they produce statements of account.

At Lycos, I deal with about 25 families where I provide financial planning and portfolio management. I want my clients to have all the time they need so I limit my business to no more than 40 families. This would keep me as busy as I want to be and yet allow me the time I need to do good work.

I take a financial planning focus on getting to know the client well – who they are, their goals, their financial and personal situation, their risk tolerance and investment experience, their anticipated cash needs through time. We also address risks that can derail their financial goals and destroy their lifetime of savings.

As most of my clients are retired or near retirement, capital preservation and the development of stable dependable cashflow from their portfolio to meet their needs are typically key objectives.

In designing a portfolio, much time goes into determining a client’s needs for cash through time. Time is important as it has a direct relationship with investment risk. We also spend quite a bit of time determining risk tolerance. This work helps us to figure out how much to invest in equities.

Get the right asset mix is key to controlling risk so that our clients get the growth (or cashflow) they need without taking unnecessary risk. Our clients’ investments are well diversified to control risk as a poorly designed portfolio can wipe out a lifetime of savings (we manage company risk, industry risk and your level of equities).

We also have a value-orientation in selecting investments as they tend to have lower downside risk and good risk-adjusted returns. Having a lower volatility portfolio matters especially in your retirement years if you have to eat capital to meet your needs. Higher volatile portfolios means eating assets when they are down making it tough to impossible to recover to previous levels. That can lead to early depletion of your portfolio and outliving your money.

Once we have figured out the Equity Target, we do some Dynamic Asset Allocation in consultation with our client as to whether we’ll overweight or underweight in equities depending on our view of the economy and the market.

We then spend time on selecting quality income-oriented investments, controlling risk, and sheltering income from taxation.

For equities, I generally select at least 25 individual stocks which are equal weighted to manage company risk. I want my clients to directly own quality investments at a low cost. I do not like expensive mutual funds as I feel that you can cut your cost by 50% or more through direct ownership of quality stocks and bonds. And I don’t normally like ETFs as I believe you can do better by constructing a quality dividend income oriented stock portfolio at good prices and avoid the expensive businesses and bad ones included in the ETF.

I use a number of stock screens to help identify potential investments. I generally am buying larger companies that are dominant in their market (i.e. they have competitive advantages), are not burdened with too much debt, are profitable (a low Price-to-Earnings) and pay a dividend with a good dividend yield. Those companies will be diversified by industry to manage industry risk.

1. What drew you to that specific strategy? If you only had 3 valuation metrics what would they be?

If I only had three valuation metrics, they would be low Price-to-Earnings, high dividend yield, low Debt-to-Equity.

1. What books or other investors changed the way you think, inspired you, or mentored you? What is the most important lesson learned from them? What investors do you follow today?

A fun and inspiring book is, “The Richest Man in Babylon” by George S. Classon.

But if you are interested in stock strategies, then you might read, “What Works on Wall Street” by James P. O’Shaughnessy. This book examines stock strategies over 40 years looking at their returns, risk-adjusted returns, downside risk. This influenced my mind about trying to select stocks with certain characteristics and to pick enough so that you get the strategy returns through time. This rightly led me away from indexing.

I don’t follow other investment managers per se. But I have enjoyed reading Warren Buffet’s Berkshire Hathaway Shareholder Letters.

1. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

I would generally hold onto a stock as long as the investment thesis remains valid. Stock positions may get trimmed if they become too large compared to other stocks – for example, if a stock has doubled, there is twice the company risk in that stock compared to other stocks. Stocks may be sold if there are other stocks with better characteristics.

1. How has your investing approach changed over the years?

I have found that my convictions on how to invest have strengthened. I have tried many strategies in investing to gain higher returns; but usually higher returns comes with higher levels of risk. My preference is value strategies to get good risk-adjusted returns.

1. Name some of the things that you do or believe that other investors do not

Our philosophy on how we structure our business is quite unique. We run a very personalized business.

Our clients are not a number, we know you and you know us. When a client calls, they call me directly – not an assistant, not a relationship manager, not client service. Because we limit the number of families, we have lots of time to spend for financial planning or for education.

We design for our clients a customized tailored investment portfolio as opposed to pigeonholing a client into a type of client risk profile where the clients monies are allocated to different pools according to the standardized portfolio profile allocation.

Even more than that, our clients can have anywhere from no involvement to a great deal of involvement in the management of their portfolio. Their portfolio is fully customizable to their specific requirements and preferences. If they don’t like a particular stock, type of business, etc., fine, we don’t buy it.

The reality is that some clients are the engineer types that have to be hands on with all the details, and some, once they have established their comfort with you, are hands-off. Through time, my clients become more educated, and make more rational investment decisions in the face of the ups and downs of the market and of individual investments.